Small and mid-cap stocks rebounded even as their bigger counterparts were volatile after falling the most in three months following the nation's attack on terrorists in Pakistan.
The S&P BSE MidCap Index jumped the most in seven months as some investors judged the gauge's 3.6 per cent tumble on Thursday was overdone. The S&P BSE Sensex and the NSE 50 Nifty Index, India's benchmark indexes, closed little changed amid volumes that were five per cent below the 30-day mean. The Sensex slid the most since June 24 on Thursday.
"The mood is still cautious and the only hope is the tensions don't escalate," said Aneesh Srivastava, who manages $700 million as chief investment officer at IDBI Federal Life Insurance Co in Mumbai. "The economic consequences for us could be far greater if Pakistan retaliates."
The conflict in Pakistan and increased global volatility have introduced a sobering note for the Indian markets closing out a blockbuster quarter. The Sensex capped a second quarterly advance with a 3.2 per cent gain in the three months ending Friday and the rupee is poised to end a five-quarter losing run.
Benchmark 10-year bond yields have plunged 63 basis points, the most since the three months ended December 2014. Local assets have rallied as foreigners bought the most stocks and bonds in the September quarter since the similar period ended March 2015, as the government took steps to boost economic growth.
Speculation that slowing inflation will allow new Reserve Bank of India Governor Urjit Patel to cut interest rates at next week's policy review have added to the optimism.IDBI Federal expects borrowing costs to fall 25 basis points by the year-end, Srivastava said.
Global investors bought Rs 3,410 crore of shares and their domestic counterparts were net buyers of Rs 1,630 crore of equities on Thursday, provisional data from the nation's exchanges show. State-run banks bought a record amount of sovereign bonds on Thursday, taking advantage of the biggest yield jump in 13 months after the country's army said it attacked terrorist camps in Pakistan.
Bloomberg
